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Financial Services Law Insights and Observations

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  • Regulators tackle company offering relief from student loans

    Federal Issues

    On October 30, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21 and unsealed on October 29 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015 the defendants have violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claim the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. The defendants also allegedly failed to inform borrowers that they automatically requested that the loans be placed in forbearance and submitted false information to student loan servicers to qualify borrowers for lower payments. The complaint seeks injunctive relief, as well as damages, restitution, disgorgement, and civil money penalties.

    On November 15, the court entered a preliminary injunction enjoining the alleged violations of law in the complaint, contining the asset freeze, and appointing a receiver against the defendants. 

    Federal Issues CFPB Student Lending Debt Relief Courts State Attorney General CFPA Telemarketing Sales Rule UDAAP

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  • CFPB Private Education Loan Ombudsman's annual report focuses on debt relief scams

    Federal Issues

    On October 15, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2017 and August 31, 2019. The report, titled Annual Report of the CFPB Student Loan Ombudsman, is based on approximately 20,600 complaints received by the Bureau relating to federal and private student loan servicing, debt collection, and debt relief services. The report focuses primarily on complaints and student loan debt relief scams, which are, according to Private Education Loan Ombudsman Robert G. Cameron, “two subjects that, if promptly addressed, may have the greatest immediate impact in preventing potential harm to borrowers.” Of the 20,600 complaints, roughly 13,900 pertained to federal student loans with approximately 6,700 related to private student loans. Both categories reflect a decrease in total complaints from previous years. The report also notes that the Bureau handled roughly 4,600 complaints related to student loan debt collection.

    The report goes on to discuss collaborative efforts between federal and state law enforcement agencies, including the CFPB, FTC, Department of Education, and state attorneys general, to address student loan debt relief scams. According to the report, the FTC’s Operation Game of Loans (previous InfoBytes coverage here) has yielded settlements and judgments totaling over $131 million for the past two years, while Bureau actions (taken on its own and with state agencies) have resulted in judgments exceeding $17 million.

    The report provides several recommendations, including that policymakers, the Department of Education, and the Bureau “assess and consider the sharing of information, analytical tools, education outreach, and expertise” to prevent borrower harm, and that when harm occurs, “reduce the window in which harm is occurring through timely identification and remediation.” With regard to student loan debt relief scams, the report recommends, among other things, that enforcement should be expanded “beyond civil enforcement actions to criminal enforcement actions at all levels.”

    Federal Issues CFPB Student Lending Debt Collection Debt Relief Consumer Complaints FTC

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  • FTC lawsuits allege student loan scams

    Federal Issues

    On September 12, the FTC announced two separate suits filed in the U.S. District Court for the Central District of California against various entities and individuals who allegedly engaged in deceptive practices when promoting student loan debt relief schemes.

    In the first complaint, filed jointly with the Minnesota Attorney General, a debt relief company and its owners (collectively, the “Minnesota defendants”) were alleged to have violated the FTC Act, TILA, the Telemarketing Sales Rule (TSR), and various state laws, by charging consumers who sought student loan payment reduction programs an advance fee of over $1,300 while falsely representing that the payment would go toward their student loans. The advance fee, the FTC contends, was allegedly financed through high-interest loans from a third-party finance company identified as a co-defendant in both complaints. The stipulated order entered against the Minnesota defendants prohibits them from, among other things: (i) making material misrepresentations related to their financial products and services, or any other kind of product or service; (ii) making unsubstantiated claims about their financial products and services; (iii) engaging in unlawful telemarketing practices; or (iv) collecting payments on accounts sold prior to the order’s date. The stipulated order also requires the Minnesota defendants to notify its customers that none of their prior payments have gone towards a Department of Education repayment program or towards their student loans, and orders the payment of $156,000, with the total judgment of approximately $4.2 million suspended due to inability to pay.

    The FTC filed a second complaint against a separate student loan debt relief operation for allegedly engaging in deceptive and abusive practices through similar actions, including charging consumers advance fees of up to $1,400 and enrolling consumers in the same finance company’s high-interest loan program. The action against the second student loan debt relief operation is ongoing.

    Both complaints also charge the finance company with violating the assisting and facilitating provision of the TSR by providing substantial assistance to both sets of defendants even though it knew, or consciously avoided knowing, that they were engaging in deceptive and abusive telemarketing practices. The FTC also alleges that the finance company violated TILA when it failed to clearly and conspicuously make certain required disclosures concerning its closed-end credit offers. Separate stipulated orders were entered by the FTC in each case (see here and here) against the finance company. The orders’ terms require the finance company to pay a combined $1 million out of a nearly $28 million judgment, with the rest suspended due to inability to pay, as well as relinquish its rights to collect on any outstanding loans. Among other things, the orders also permanently ban the finance company from engaging in transactions involving secured or unsecured debt relief products and services or making misrepresentations regarding financial products and services.

    Federal Issues FTC Enforcement Student Lending Debt Relief State Attorney General FTC Act Telemarketing Sales Rule TILA UDAP

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  • FTC seeks permanent injunction against student loan debt relief operation

    Federal Issues

    On July 11, the FTC announced it was charging a student loan debt relief operation with violations of the FTC Act and the Telemarketing Sales Rule for allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges the operators of the scheme allegedly, among other things, (i) charged borrowers illegal advance fees; (ii) falsely claimed they would service and pay down their student loans; and (iii) obtained borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers. According to the FTC, the defendants allegedly collected more than $23 million from consumers, and when asked why their payments were not being applied to their loans, the defendants “informed consumers that their entire payments had been collected as ‘handling’ or ‘management’ fees.” On July 10, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”

    Federal Issues FTC Enforcement Debt Relief Student Lending FTC Act Telemarketing Sales Rule UDAP

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  • Law firms settle with CFPB over debt relief fee allegations

    Courts

    On March 27, the U.S. District Court for the Central District of California entered a consent judgment ending a CFPB lawsuit against a group of affiliated law firms and their managing attorneys. As previously covered by InfoBytes in 2017, the Bureau’s enforcement action alleged that the defendants violated the Telemarketing Sales Rule by, among other things, (i) collecting improper fees in advance of providing debt relief services; (ii) misrepresenting that advance fees would not be charged; and (iii) providing substantial assistance to another company it knew or should have known was engaged in acts or practices that violated the rule. Under the terms of the consent judgment, the defendants—who have neither admitted nor denied the Bureau’s allegations or the factual findings outlined in the judgment—agreed to pay approximately $35.3 million in redress to affected consumers and a $40 million civil money penalty. However, based on the defendants’ inability to pay this amount, full payment is suspended subject to the defendants paying $50,000 to affected consumers and $1.00 toward the CMP.

    Courts CFPB Telemarketing Sales Rule UDAAP Debt Relief Consumer Finance Settlement

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  • FTC reaches settlements with mega-robocallers

    Federal Issues

    On March 26, the FTC announced settlements issued against four separate operations for allegedly placing billions of illegal robocalls to consumers selling auto warranties, debt-relief services, home security systems, veterans’ charities and Google search results services. The actions are part of the FTC’s ongoing efforts to combat illegal robocalls. According to the FTC, the companies—along with several of their affiliates and leaders—allegedly violated the FTC Act and the Telemarketing Sales Rule (TSR), including its Do Not Call provisions.

    Proposed settlements issued against two related operations and their leaders—who, according to the FTC’s complaint, developed and enabled a software dialing platform that resulted in more than one billion robocalls—ban the defendants from engaging in telemarketing activities utilizing an autodialer, and imposes judgements ranging from $1 million to $2.7 million, of which two are fully suspended due to the defendants’ inability to pay. The FTC also reached a final settlement against defendants who allegedly placed robocalls to pitch fake debt-relief services promising lowered credit card interest rates and interest payment savings. The order permanently bans the defendants from engaging in telemarketing and debt-relief services, and imposes a $3.15 million judgment, which will be suspended following the turnover of available assets. Separately, the FTC reached a proposed settlement with a defendant who allegedly used robocalls promoting fake veterans’ charities to solicit donations, which he eventually sold for his own benefit. The proposed order bans the defendant from engaging in telemarketing services or soliciting charitable contributions, prohibits him from making future misrepresentations, and imposes a $541,032 monetary judgment, which will also be suspended following the turnover of available assets. Finally, the FTC announced proposed settlements against three defendants (see here, here, and here) whose Florida-based operations allegedly violated the TSR by falsely claiming to represent Google and making threats and promises to businesses concerning search results and page placements. The terms of the proposed settlements, among other things, ban the defendants from deceptive sales practices, and require the defendants to disclose their identities during telemarketing sales calls. Monetary judgements imposed against the defendants and their companies range from $1.72 million to $3.62 million, and will be partially suspended due to their inability to pay. 

    Federal Issues FTC Settlement Robocalls Deceptive Debt Relief Autodialer FTC Act Telemarketing Sales Rule

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  • For-profit education company forgoes collection on almost $494 million in student loans

    State Issues

    On January 3, an Illinois-based for-profit education company settled with 49 state attorneys general, agreeing to forgo collection of nearly $494 million in debts owed by almost 180,000 students nationally. According to the Illinois Attorney General’s announcement, after a seven-year investigation into the company’s practices, the participating states allege that, among other things, the company (i) deceived students about the total costs of enrollment; (ii) failed to adequately disclose that certain programs lacked programmatic accreditation, which would negatively affect a student’s ability to get a license or employment in that field; and (iii) misled prospective students about post-graduate job rates. Under the settlement, the company has agreed to forgo collection of debts owed by students who either attended a company institution that closed before Jan. 1, 2019, or whose final day of attendance at two participating online institutions occurred on or before Dec. 31, 2013. In addition to the debt relief, the settlement also requires the company to, among other things, reform its recruiting and enrollment practices, including providing students with a single page disclosure that covers the (i) anticipated total direct cost; (ii) median debt for completers; (iii) programmatic cohort default rate; (iv) program completion rate; (v) notice concerning transferability of credits; (vi) median earnings for completers; and (vii) the job placement rate.

    State Issues State Attorney General Student Lending Debt Collection Debt Relief

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  • Department of Education forgives roughly $150 million in student loans eligible for automatic closed school discharge

    Lending

    On December 13, the Department of Education announced it will automatically discharge approximately $150 million in student loans for roughly 15,000 eligible borrowers as part of implementing the Department’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”), which took effect in October following a decision by the U.S. District Court for the District of Columbia that the Department’s move to delay the regulations—finalized in 2016 and originally set to take effect July 1, 2017—was procedurally invalid (see InfoBytes coverage on the ruling here.) The Borrower Defense Regulations are designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. Of the $150 million, approximately $80 million of the amount is attributable to loans taken out by students who attended now bankrupt, for-profit Corinthian schools. (See InfoBytes coverage on matters related to Corinthian schools here.) The announcement also provides information for loan holders, guaranty agencies in the Federal Family Education Loan program, and schools concerning new closed school discharge requirements.

    Lending Department of Education Student Lending Debt Relief

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  • Court grants summary judgment in favor of FTC and Florida State Attorney General in debt relief scam case

    Courts

    On December 10, the U.S. District Court for the Middle District of Florida granted the FTC and the Florida Attorney General’s motion for summary judgment against an individual accused of participating in a scheme that allegedly targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. According to a 2016 complaint, several interrelated companies and the founder of such companies (defendants), among other things, allegedly violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act by (i) claiming to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates; (ii) charging up-front payments for debt relief and rate-reduction services; and (iii) pitching credit card debt-elimination services, claiming the defendants could access money from a government fund to pay off consumers’ credit card debt in 18 months, when in actuality, no such government fund existed. In some cases, the defendants instructed consumers to stop paying their credit-card bills, resulting in “significant harm in the form of reduced creditworthiness, higher interest rates on their existing credit-card debt, and higher overall credit-card debt due to the accrual of late fees and interest charges.”

    The court entered a permanent injunction ordering the defendant founder of the companies involved to pay over $23 million in equitable monetary relief. The order also permanently restrains and enjoins such defendant from, among other things, participating—whether directly or indirectly—in (i) telemarketing; (ii) advertising, marketing, selling, or promoting any debt relief products or services; or (iii) misrepresenting material facts.

    Courts State Attorney General FTC Debt Relief Robocalls FTC Act Telemarketing Sales Rule State Issues

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  • FTC reaches settlements with two student loan debt relief operators

    Lending

    On December 7, as part of Operation Game of Loans—a coordinated effort between the FTC and state law enforcement—the FTC announced settlements with operators of two student loan debt relief operations to resolve allegations that the defendants violated the FTC Act and the Telemarketing Sales Rule by, among others (i) charging consumers who purchased the debt relief services illegal upfront fees; and (ii) falsely promising to assist consumers in enrolling in government programs that would reduce or forgive their student loan debt.

    Under the terms of the settlement, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Combined, the settlements total more than $36 million, though judgments have been partially suspended due to the defendants’ inability to pay.

    Lending FTC Student Lending Debt Relief Settlement FTC Act Telemarketing Sales Rule

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